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Banking Law Journal

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In response to the avalanche of claims against attorneys, legal malpractice insurers have sought to limit their exposure. These insurers have followed the lead of insurers that issued directors' and officers' liability policies containing exclusionary provisions, commonly referred to as FDIC exclusions or regulatory exclusions. These policy provisions specifically excluded claims made by government regulators such as the FDIC and the now-defunct Federal Savings and Loan Insurance Corporation (FSLIC).

Despite express exclusionary language in the directors' and officers' liability policies, the FDIC and FSLIC challenged the regulatory exclusions. The regulators claimed that the exclusions were unenforceable because they were contrary to public policy. A number of trial courts have ruled on the validity of regulatory exclusions under directors' and officers' liability policies. Some courts have been persuaded by the FDIC's myriad arguments and have declared that the regulatory exclusions are unenforceable because they contravene public policy. Other courts have held that no public policy abrogates the regulatory exclusions.

To date, there has been no reported decision on regulatory exclusions in legal malpractice policies. Therefore, the only guidance on the enforceability of such exclusions is the case law on regulatory exclusions in directors' and officers' liability policies. After discussing the current case law and statutory developments affecting directors' and officers' liability policies, this article will consider the applicability of public policy arguments to legal malpractice policies. Finally, the article will discuss the consequences of judicial rewriting of the policies to both insured attorneys and their clients.



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